Byline: Reg Birchfield
When it comes to thinking about organisational crime, directors need to change their mindset, says soon-to-exit Serious Fraud Office (SFO) boss Adam Feeley. He's genuinely nonplussed by board attitudes and ambivalence about treating fraud and corruption as a governance priority.
Despite the recent spectacle of the collapse of almost all the country's finance companies, fraud and corruption is hardly on their radar, he muses. How can that be when corporate crime threatens to "cost their organisations a great deal of money" on the one hand and, could "get them into heaps of personal hot water" on the other, he asks?
Notwithstanding disturbing statistics and a plethora of anecdotal evidence that there's more corporate crime about, New Zealand's listed companies and organisations think they are bullet proof. "Whether it's internally or externally hatched, crime costs," says Feeley. "And why is ignoring the prospect that it could negatively impact the bottom line any less a strategy than implementing a new business growth plan to enhance profitability? It doesn't make sense."
Most boards ignore what Feeley sees as a growing problem. Directors think their internal processes will deal with it. "Saying 'we have processes' is such an inane comment," he says. "And we hear that rationale time and again. In any large scale fraud, be it Enron, Libor or anything else, the organisations defrauded all had processes. Processes count for very little when faced with determined fraudsters -- internal or external.
"Boards need to acknowledge that financial crime and corruption is a daily occurrence in every industry sector. Directors should ask themselves how they can be sure their business is not somewhere, somehow exposed to or involved in it. And that's about board ethics, organisational culture and a commitment to tackling the problem differently and seriously," he adds.
Earlier this year, global consultancy KPMG released its latest fraud barometer. It showed the value of local fraud cases climbed almost $80 million to $279 million last year. Admittedly most of the increase involved fraud against financial institutions, including some very large ones.
"Fact is," says Feeley, "businesses' increasing complexities, speed and exposure to external markets are collectively changing the ball game. Directors should be changing their practices and priorities to reflect the impacts of these changes. New Zealand's board practices are shaped by, and based on historical perceptions that are no longer relevant. History provides no guarantees or guidelines by which to measure future corruption trends," he adds.
"Crime, fraud, corruption, call it what you will, is a growing part of organisational reality. We are socially, ethnically and financially -- in terms of rich and poor in our society -- a very different country than we were a few years ago and, particularly since the global financial crisis [GFC]."
Feeley is involved in organising a meeting of global law enforcement agencies in the United Kingdom before he leaves the SFO. "We need to work more closely with the world's law enforcers -- there are so many cross-border contacts now. And the legal framework in our jurisdictions is not as good as the operational network that we can create," he says.
Boards need to determine and articulate their organisational ethics and values. Companies are inanimate but in reality they reflect people that represent them, says Feeley. Boards don't, in his opinion, seem to put much effort into deciding their values. Even when they agree on a values-driven approach they fail to "operationalise" those values.
Principles and values
"It is not enough to sit around the board table and say: 'we agree that we'll do business fairly and lawfully, we'll be ethical and we are good people and our staff understand that and it will happen' -- it doesn't," he says. …